Hurley International LLC

About Hurley International LLC

Fleet-of-footwear NIKE, named for the Greek goddess of victory, is the world's #1 shoe and apparel company. NIKE designs, develops, and sells a variety of products and services to help in playing basketball and soccer (football), as well as in running, men's and women's training, and other action sports. Under its namesake brand, NIKE also markets sports-inspired products for children and various competitive and recreational activities, such as golf, tennis, and walking, and sportswear by Converse and Hurley. NIKE sells through more than 1,000-owned retail stores worldwide, an e-commerce site, and to thousands of retail accounts, independent distributors, and licensees.

Operations

NIKE operates in six geographic segments: North America, Western Europe, Central & Eastern Europe, Greater China, Japan, and Emerging Markets. Almost all of the company's branded footwear and apparel is made by third-party manufacturers outside of the US, mainly in Vietnam, China, and Indonesia. Its equipment products are made both in the US and abroad.

Each NIKE Brand geographic segment operates predominantly in one industry namely, the design, development, marketing and selling of athletic footwear, apparel and equipment. The segments include results for the NIKE, Jordan and Hurley brands. The Company's NIKE Brand DTC operations are managed within each geographic operating segment. Converse is also a reportable segment and operates in one industry: the design, marketing, licensing and selling of casual sneakers, apparel, and accessories.

Converse and Hurley, its affiliate brands, and NIKE Golf comprise NIKE's Other Businesses. NIKE sells to thousands of US retail accounts, which include a mix of footwear stores; sporting goods stores; athletic specialty stores; department stores; skate, tennis, and golf shops; and other retail accounts. During 2016, NIKE's three largest customers accounted for more than 25% of US sales.

NIKE sells its products to retail accounts through its own Direct-to-Consumer operations and through a mix of independent distributors, licensees, and sales representatives worldwide. The company sells to thousands of retail accounts and operates more than 40 distribution centers outside of the US.

Footwear accounted for 61% of the company's revenues in 2016.

Geographic Reach

NIKE is based near Beaverton, Oregon; it has a 400-acre site with more than 40 buildings. In fiscal 2016 (May year end) North America accounted for 46% of sales, Western Europe (18%), Greater China (12%), Emerging Markets (11%), Central & Eastern Europe (4%), and Japan (3%). Other operations account for the rest of its revenues.

In the US NIKE owns a full product line distribution center in Memphis, Tennessee, and four other distribution centers, three of which are leased, also in Memphis. NIKE Brand apparel and equipment are also shipped from its Foothill Ranch, California distribution center, which the company leases. The company also owns or leases distribution and customer service facilities outside the United States. The most significant are the distribution facilities located in Laakdal, Belgium; Taicang, China; Tomisato, Japan and Incheon, Korea, all of which the company owns.

Worldwide, NIKE sells its products to retail accounts, through NIKE-owned retail stores and Internet websites, and through a mix of independent distributors and licensees. NIKE also sells its products to wholesale customers and directly to consumers through its Direct to Consumer operations. It also enters into licensing agreements that permit unaffiliated parties to make and sell certain apparel, digital devices and applications, and other equipment designed for sports activities.

The company sells to thousands of retail accounts and ships products from more than 40 distribution centers outside of the US.

NIKE markets its footwear and other products globally through diverse advertising and promotional programs and campaigns, including print, social media, online advertising, and endorsement contracts with celebrity athletes. Total advertising and promotion expenses were about $3.3 million, $3.2 million and $3.0 million for 2016, 2015, and 2014, respectively.

During fiscal 2014, NIKE's three largest customers helped to bring in 25% of US sales. During the same reporting period, the company's three largest customers outside of the US accounted for 13%, of total non-US sales.

The company is supplied by approximately 142 footwear factories located in 15 countries and is supplied by approximately 394 apparel factories located in 39 countries.

Financial Performance

Net sales of the company have seen an upward trend since 2012.

In fiscal 2016 net sales increased by 6% due to higher North America and Greater China revenues partially offset by decreased sales from Emerging Markets.

Currency-neutral footwear revenue growth was attributable to higher revenues in most key categories, led by the Jordan Brand, Sportswear, Running and Women's Training. Apparel revenue growth was driven by its Sportswear and Men's Training categories.

Net income has also moved upward since 2012.

In fiscal 2016, net income increased by 15% due to higher sales.

Net cash provided by the operating activities decreased by $1.5 billion due to changes in accounts payable, accrued liabilities, and income tax payable.

Strategy

With revenue growth slowing and intense competition from top rival Adidas, among others, NIKE has embarked on a transformation. In 2017 the company cut about 2% of its workforce (about 1,400 workers), consolidated six operating segments into four, and sharpened its focus on 12 key global cities (including New York, London, Beijing, and Shanghai) which it thinks will power growth through 2020. In addition, NIKE's transformation strategy includes several buzzwords familiar to anyone following retail and consumer products companies (and plenty of other companies for that matter): digital, omnichannel, innovation.

As sporting goods companies and mall retailers (traditional homes for NIKE products) continue to struggle with falling foot traffic and online competition, NIKE is looking to connect more directly with its customers. In 2017 it created a NIKE Direct organization that includes direct-to-consumer retail operations, Nike.com, and Nike+ apps and other digital products. The company is looking for digital sales to double to 30% of total revenue.

Its SNKRS app, first launched in 2015 and enhanced with augmented reality and other features in 2017, is becoming the digital destination for sneakerheads (the affectionate term for those who collect or trade sneakers as a hobby). In addition, some 140 million members have signed up for the relaunched NikePlus membership app and NIKE is aiming to more than double that number over the next few years.

In 2018 it opened a localized store in Los Angeles called Nike by Melrose that is stocked with the product preferences of local users of the NikePlus app. NikePlus users can purchase or reserve products via the app and pick them up from a smart locker at the store or via curbside service. App users are also recognized when they enter the store with the idea that eventually recommended items could be set aside in the customer's size for their consideration. Los Angeles is of course one of NIKE's 12 target cities and the new store format is one example of how the company plans to be a "local business, on a global scale."

In addition to its digital focus, NIKE is innovating within its product portfolio to better compete. It has reduced its styles by 25% in order to more quickly offer new lines to customers. It has already seen a positive response to newer platforms such as the Air VaporMax Flyknit (air-cushioned sneaker), Air Max 270 (air-cushioned lifestyle shoe), and Epic React (running shoe).

Mergers and Acquisitions

After a period of minimal acquisition activity, Nike has picked up the pace in 2018 with two smaller acquisitions designed to bolster its technology and ability to innovate. It purchased Israeli computer vision firm Invertex, which does 3-D body scanning, and northeastern US-based data analytics company Zodiac. Nike expects both transactions to enable its direct-to-consumer strategy to better serve customers.